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Why Novavax (NVAX) Stock Price Appreciated 14% on Monday

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Shares of Novavax (NVAX - Free Report) rose 13.7% on May 20 after the activist investor Shah Capital Management decided to withdraw its proxy campaign to remove the company’s three board members.

This withdrawal comes a week after Novavax signed a multi-billion-dollar deal with pharma giant Sanofi (SNY - Free Report) , breathing new life into the former, which had been facing uncertainties in its business for a long time. This deal even allowed Novavax to do away with its previous concerns about its ability to continue as a ‘going concern.’ Per Shah, the partnership with Sanofi is ‘a long-awaited step in the right direction’ for Novavax.

Beginning next year, Sanofi will gain rights to co-market Novavax’s protein-based COVID-19 vaccine, Nuvaxovid, globally. The French drugmaker will also have the sole license to develop and market the Novavax vaccine in combination with its influenza vaccine. In return, Novavax will be eligible to receive up to $1.2 billion, including $500 million in upfront payment and the rest in milestone payments. NVAX will also be eligible to receive tiered double-digit percentage royalty payments on product sales under this deal.

In addition to the above deal, Sanofi also agreed to make an equity investment of nearly $70 million in Novavax in exchange for a 4.9% stake.

Shah Capital launched its proxy fight days before the deal with Sanofi was announced, urging investors to vote against three incumbent directors and opposed proposals related to executive compensation at the company’s annual meeting on Jun 13.

Despite the campaign withdrawal, Shah will continue to monitor the company as it believes that ‘significant additional value remains to be unlocked.’

A hedge fund, Shah Capital Management is one of the three largest shareholders in Novavax. Since the past few weeks, the investment firm has been steadily raising its stake in the company and currently holds around 7.9% of its outstanding common stock.

Year to date, the stock has skyrocketed 208.1% against the industry’s 5.1% fall.

Zacks Investment Research
Image Source: Zacks Investment Research

Despite being among the handful of companies to have a marketed COVID-19 vaccine in its portfolio, Novavax was not able to reap the benefits of the COVID-19 pandemic compared with its peers like Moderna (MRNA - Free Report) and Pfizer (PFE - Free Report) .

As the COVID-19 pandemic ended, the demand for vaccines has fallen significantly. Though Moderna and Pfizer are also experiencing this decline across the top and the bottom line, their profits generated from sales during the pandemic have strengthened their cash position. This allowed Moderna and Pfizer to make increased investments in R&D to expand their pipeline and support their expected new product launches.

However, Novavax had been unable to enjoy these benefits as it had a delayed product launch thanks to some manufacturing issues that led to delayed regulatory filings and delayed approval.

With the backing of a pharma bigwig like Sanofi, Novavax expects to increase the market share and presence of its COVID vaccine to a larger audience. Using the funds from this deal, Novavax also started making plans to expand its pipeline. Alongside its first-quarter earnings, management claimed to have been developing a new approach for vaccinating against H5N1 bird flu. It is also advancing core technology for different uses like mucosal vaccination and high-density nanoparticles.

 

Zacks Rank

Novavax currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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